Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/233084
Authors: 
Ritter, Nolan
Bingler, Julia Anna
Year of Publication: 
2021
Series/Report no.: 
Economics Working Paper Series No. 21/348
Abstract: 
We use a large, randomized field experiment that exogenously varies prices to test their effect on consumption. Full information is available at zero costs. However, households state prices that are, on average, ten times larger than actual. But ignorant households cannot react to prices and so the price mechanism becomes dysfunctional. Our results explain small or zero price effects from previous research. We show that researchers must provide evidence for a functional price mechanism before ascribing causal effects or risk biased conclusions. The same applies to price instruments that are often regarded as first best solutions.
Subjects: 
households
information
price experiment
JEL: 
D12
D83
L95
Q41
Q54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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